Houston: We Have Another Problem

As oil and gas leaders converge on Houston for the year’s largest industry conference, CERA Week, falling oil and gas prices are understandably top of mind and a cause for concern for the industry. But there is another decline story underway in industry, one that poses a risk to the future of hydrocarbons in a carbon constrained world – a story of falling trust.

While today’s $30 oil price is disruptive in the short-term, new information on the very low level of public trust in the oil and gas industry should prompt concern from executives and investors about possible longer-term disruption to companies’ social license to operate.

The Industry’s Public Trust Problem

Recent polling conducted by KRC Research for EDF found that a mere 29 percent of Americans trust oil and gas companies to operate responsibly. Strikingly, even among Republicans, the trust rate is under 40 percent.

Digging deeper into the numbers, just 15 percent of Americans trust the oil and gas industry to be accurate in disclosing how much pollution they cause.

So what do these results mean?

They mean that a basic ingredient essential to the long-term viability of any industry – societal trust – is sorely lacking. When 197 nations agree to an ambitious framework and goal to cut greenhouse gas pollution, but very few Americans trust oil and gas operators to even disclose their pollution accurately, a collision course develops.

An Opportunity for Building Trust

Methane – the main component of natural gas and a powerful short-term climate forcer – is not the only environmental problem associated with the oil and gas industry. But because methane has such serious implications for natural gas’ reputation as a clean, lower carbon energy fuel source, it has become a referendum on the ability of industry to operate responsibly and deliver fuels that facilitate a transition to a low carbon economy.

A few corporate leaders have stepped forward to act on methane, but industry’s response to date has fallen far short. That’s why even by conservative estimates, the industry here in the U.S. continues to release methane into the atmosphere at a rate upwards of 7 million metric tons annually, creating the same 20-year climate impact as 160 coal-fired power plants. And globally, annual methane emissions from oil and gas pack a short-term climate punch equivalent to the carbon dioxide pollution from 70 percent of global coal-fired power plants.

The Path Forward

The path to raising commodity prices is complicated, and is well beyond the control of any one operator. But there is a path to raising trust. Oil and gas executives can boost the reputation and long-term standing of their companies and industry writ large, by showing the public, regulators and investors that they’re serious about addressing their methane problem.

Enhance disclosure – A lack of information breeds distrust. So in light of the trust deficit, it is not surprising to find that methane disclosure by companies is inadequate. As EDF found in a report released last month, none of the leading 65 upstream and midstream players in the U.S. disclose any quantitative target to reduce methane emissions. Boosting disclosure is low-hanging fruit for operators, and a way for leaders to build awareness of actions they are already taking to reduce methane emissions.

Support rules – As Goldman Sachs CEO Lloyd Blankfein once said, oil and gas companies that get facilities permitted in the absence of methane rules are achieving “a very hollow victory”. Supporting rules is an investment in ensuring the public that a level playing field exists with climate and health protections they can believe in. The long-term cost to industry if it sustains regulatory hostility is the real one for executives worry about.

Encourage scientific study – Scores of studies in the U.S. have improved national understanding of emissions, unlocked waste reduction opportunities, and provided a basis for data-driven regulations that work. The state of methane measurement globally is much less mature. ENI, Total and BG Group committed in Paris to partner with EDF to advance methane measurement internationally, and more companies have the opportunity to support these efforts.

Adopt best practices – Instituting best practices for methane management is a good springboard to demonstrate responsibility, engage local stakeholders, inspire investor confidence, and set a foundation for compliance with the rising wave of methane and air pollution regulations. Global companies should look closely at the Oil and Gas Methane Partnership (affiliated with the United Nations) as an emerging opportunity with a set of resources and protocols that can facilitate best practice adoption and the kind of transparency that can help build trust. And other multi-stakeholder opportunities exist, like the Methane Detectors Challenge to catalyze faster, cheaper methane detection systems.

Speculation abounds on the shape and speed of the oil price recovery, but for the long term, a trust recovery is just as essential for shoring up oil and gas’ role in a changing world. Methane management is a key place to focus and should remain top of mind for the C-suite.

One Comment

"new information on the very low level of public trust in the oil and gas industry should prompt concern from executives and investors about possible longer-term disruption to companies’ social license to operate."

Whatever…as long as hydrocarbons are the fuel for a modern economy, oil and gas companies will continue to have a "social license to operate."